Marijuana retailers may not have to grow their own -- and that's great, attorney says

Last month, the governor-appointed Amendment 64 task force recommended that retailers taking part in the recreational marijuana industry be required to grow 70 percent of their product under a business model known as vertical integration that's currently imposed on medical marijuana outlets. Yesterday, though, members of the legislature's A64 joint committee rejected that advice. Their word isn't final, but a longtime critic of vertical integration thinks consumers will be much better off if they get their way.

Under state law, MMJ dispensaries must obey the 70/30 rule, which means they are required to grow at least 70 percent of their own product, while acquiring no more than 30 percent from other sources. But marijuana attorney Warren Edson says "my focus is less on 70/30 and more on vertical integration -- because without that, you can't have 70/30."

The first task force meeting took place in mid-December.

Photo by Sam Levin

And vertical integration makes no sense to Edson. For one thing, he maintains, "the skills needed to be a retailer aren't necessarily the skills needed to be a grower -- but they pretty much force you to have the same skills or find somebody to work with who has the skills you don't. That works sometimes, but it doesn't always.

"Medical marijuana is one of the few industries, if not the only industry, where retailers are forced to own the whole line of production," he goes on. "It's a huge pain in the ass to run a business like that -- and to force that model into retail is ludicrous, particularly given that Colorado voted to regulate marijuana like alcohol, and alcohol is just the opposite."

How so? Edson points out that "at a recent city council meeting, they did a nice job of talking about the history of prohibition, and how you're not allowed to be an alcohol distributor and a manufacturer. They thought it would be an easier way to regulate and control if they were separate -- yet some members of the medical marijuana industry and some of the legislators act like vertical integration is easier."

The latter theory got a whupping thanks to a state auditor report blasting the Medical Marijuana Enforcement Division, the agency in charge of enforcing regs on the MMJ industry. The title of the auditor's release about the document -- "State Oversight of Colorado's Medical Marijuana Industry Ineffective" -- neatly encapsulates the analysis, which faulted the MMED for failing to develop seed-to-sale tracking, ineffectively managing its money and taking nearly two years, on average, to process license applications.

The A64 task force "said over and over that vertical integration was safer because we already have this in place and we allegedly know how to manage this," Edson says. But the auditor's report "was the kicker. If we'd had an audit that said we have bulletproof seed-to-sale and there's no problems, that would have justified the idea that we had a system in place that was safe and totally controlled, so why rock the boat? But the auditor's report said just the opposite.

"Consumers deserve better, and it's not the government's role to shove something down an industry's throat."

Continue for more about marijuana retailers and growers. Not that every entrepreneur opposes vertical integration. Indeed, the Medical Marijuana Industry Group (MMIG) is among the concept's biggest backers. We've reached out to MMIG spokesman Michael Elliott for his take and will update this post when and if we receive a response.

Warren Edson.

In Edson's view, one reason current industry heavyweights like vertical integration is because it makes things more difficult for new players wanting to compete with previously established businesses -- dispensaries that will be able to transition into selling recreational cannabis as well as the medical kind.

He doubts such an approach would work. "I can't imagine protectionism historically working for an industry. If you're worried about Philip Morris or Anheuser-Busch coming into Colorado and getting into this business, they're not going to give a crap about whether there's vertical integration, because they have enough money to do whatever they want. All vertical integration does is screw up the mom and pops and the little guy growers who just want to do their own thing."

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They'll have a lot easier time doing so if final legislation nixes vertical integration. There's no guarantee it will, however. "My understanding is, it could be put back in during the course of the debate in the House and Senate over the next few weeks," Edson concedes. "And there's no way some people in the lobby won't lobby to put it back in place."

For his part, Edson thinks a new approach would be the right one. "Colorado is a free-market state, the only for-profit marijuana state," he says. "And I don't know how a forced-integration model is going to meet the demand of the allegedly one million new retail consumers when the medical marijuana industry has a hard enough time meeting the demand of 100,000 patients. Not having vertical integration would allow independent growers to provide that material to the industry."

Michael Roberts has written for Westword since October 1990, serving stints as music editor and media columnist. He currently covers everything from breaking news and politics to sports and stories that defy categorization.